Book reviews

The Telecommunications Act of 1996: The ‘‘Costs’’ of Managed Competition

Dale E. Lehman and Dennis Weisman (Kluwer Academic Publishers, Boston, 2000. pp.

x + 128)

In this book, the authors ask whether the implementation of the US Telecommunica-

tion Act of 1996— the first comprehensive telecommunications reform legislation in the

US since 1934—has achieved its declared goals. These goals included the removal of

barriers to entry and other restrictions, ‘‘. . . to promote competition and reduce reg-

ulation in order to secure lower prices. . .’’ in a competitive free-for-all US telecom-

munications market.

Although the 1996 Act fundamentally changed telecommunications regulation, mainly

by removing the outdated barriers that protected monopolies from competition, the authors

focus on the regulatory implementation that has thwarted the Act’s vision, and argue that

‘‘regulators have replaced regulated monopoly with managed competition— the antithesis

of true competition’’. Thus, the Act’s implementation has been inconsistent with its

declared goals as set out by Congress.

The authors provide evidence of the still nascent state of competition in the US

telecommunications market today, almost 5 years after the passage of the 1996 Act.

They conclude that the Act has failed to produce meaningful efficiency-enhancing

regulatory reform, partially due to the jurisdictional divide between state and federal

(FCC) regulators, and the various incentives of those charged with implementing the Act.

As a result of these jurisdictional and regulatory forces, artificially low wholesale prices

can be set, which can be expected to reduce incentives for facilities-based local entry (a

primary goal of the Act), competition and efficiency at the market level. The only thing

that can be expected to thrive due to this process, the authors argue, is the regulatory

process itself. They also criticize the FCC and the state regulators for adopting an

implementation program that focused on an unprecedented degree of micro-management,

which was at odds with the regulatory reform that has taken place in the last decade in

the US.

After their introductory chapter, the authors show, in the second chapter, how the

telecommunications industry in the US has been regulated and structured, focusing on

trends (mainly consolidation and vertical integration) and events that have transpired since

the passage of the 1996 Act. They examine how the market has been fragmented by

service and by technology, and explore the regulatory mix and its pricing implications.

They forecast a gloomy future for the US telecommunications industry, which in their

view, may fall victim to political opportunism and regulatory moral hazard, which will end

up in a legal morass.

www.elsevier.com/locate/econbase

European Journal of Political Economy

Vol. 18 (2002) 209–213

Chapter 3 explores coordination failures between Congress and the FCC, by reviewing

stock market reaction to the major legislative and regulatory events. In this way, the

authors reveal a serious disjunction between the legislative and regulatory bodies in the

case of the telecommunications sector in the US.

In the fourth chapter, the authors provide a jurisdictional model that reveals how the

shared regulatory jurisdiction of the FCC and the States may result in setting intercon-

nection prices below cost. In their view, there is a structural problem due to mixed

jurisdiction, even when the FCC’s goal is economic efficiency, and the principal-agency

problems become even more pronounced, according to the extent to which FCC objectives

differ from those of Congress.

In Chapter 5, the authors provide a theoretical analysis of the FCC’s efficient-firm cost

standard, and show that the FCC’s interpretation of cost does not rest on solid theoretical

foundations, and that it may actually tend to weaken incentives for innovation.

In their sixth chapter, the authors search for the theoretical prescription for ‘‘costs’’ that

serve as the foundation for determining wholesale prices, and highlight how misguided

regulatory implementation has played a major role in the failure of the 1996 Act to actually

bring about deregulation. In Chapter 7, the authors review the Act’s implementation at the

state level, while their final chapter provides conclusions concerning the possible future

outcomes resulting from misguided implementation of the 1996 Act.

To sum up, this book is a thought-provoking critique of the 1996 US Telecommuni-

cation Act and its future prospects, and should be read by all those who are interested in

the issues of market, government, and regulatory failure.

Eli Goldstein

Department of Economics, Bar Ilan University,

52900 Ramat Gan, Israel

E-mail address: goldseli@yahoo.com

Without a Map. Political Tactics and Economic Reform in Russia

by Andrei Shleifer and Daniel Treisman. (MIT Press, Cambridge, MA, 2000) pp. ix+223.

ISBN: 0-262-19434-1

The literature on Russia, Russian business people and politicians is at present, copious

and expresses differing opinions and views regarding their roles in this challenging

country. This literature is enriched by the contribution of Shleifer and Treisman, who

perceive Russia’s reforms in terms of the vastness of its territory, the conflict between

power groups, and the variety of political tactics and compromises. This book analyses the

reforms of the 1990s and the complex cobweb of affairs and power groups that have

dominated Russia’s panorama from both inside and outside the Kremlin. In this respect,

they offer a very innovative and proper interpretation of the past, ‘‘what has been done,

what has not been done, and how well has it been done’’ (p. 19), which in my view, can

also be of use to understand Putin’s perspective.

PII: S0176 -2680 (01 )00037 -4

Book reviews210